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G.R. No. 185814. October 13, 2010.

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SHS PERFORATED MATERIALS, INC., WINFRIED
HARTMANNSHENN, and HINRICH JOHANN
SCHUMACHER, petitioners, vs. MANUEL F. DIAZ,
respondent.
Labor Law; Labor Standards; Management Prerogative;
Management Prerogative Explained; Although management
prerogative refers to the right to regulate all aspects of
employment, it cannot be understood to include the right to
temporarily withhold salary/wages without the consent of the
employee; Any withholding of an employees wages by an employer
may only be allowed in the form of wage deductions under the
circumstances provided in Article 113 of the Labor Code.
Management prerogative refers to the right of an employer to
regulate all aspects of employment, such as the freedom to prescribe
work assignments, working methods, processes to be followed,
regulation regarding transfer of employees, supervision of their
work, lay-off and discipline, and dismissal and recall of work.
Although management prerogative refers to the right to regulate all
aspects of employment, it cannot be understood to include the right
to temporarily withhold salary/wages without the consent of the
employee. To sanction such an interpretation would be contrary to
Article 116 of the Labor Code, x x x Any withholding of an
employees wages by an employer may only be allowed in the form
of wage deductions under the circumstances provided in Article 113
of the Labor Code.
Same; Constructive Dismissals; It exists where there is
cessation of work because continued employment is rendered
impossible, unreasonable or unlikely, as an offer involving a
demotion in rank and a diminution in pay.The Court, however,
agrees with the LA and the CA that respondent was forced to resign
and was, thus, constructively dismissed. In Duldulao v. Court of
Appeals, 517 SCRA 191 (2007), it was written: There is
constructive dismissal if an act of clear discrimination, insensibility,
or disdain by an employer becomes so unbearable on the part of the
employee that it would foreclose any choice by him except to forego
his continued employment.
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* SECOND DIVISION.
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SHS Perforated Materials, Inc. vs. Diaz
It exists where there is cessation of work because continued
employment is rendered impossible, unreasonable or unlikely, as an
offer involving a demotion in rank and a diminution in pay.
Same; Same; Court agrees with the Labor Arbiter (LA) and
the Court of Appeals (CA) that the unlawful withholding of
respondents salary amounts to constructive dismissal.In this
case, the withholding of respondents salary does not fall under any
of the circumstances provided under Article 113. Neither was it
established with certainty that respondent did not work from
November 16 to November 30, 2005. Hence, the Court agrees with
the LA and the CA that the unlawful withholding of respondents
salary amounts to constructive dismissal.
Same; Probationary Employees; Security of Tenure;
Probationary employees cannot be dismissed except for cause or for
failure to qualify as regular employees.Respondent was
constructively dismissed and, therefore, illegally dismissed. Although
respondent was a probationary employee, he was still entitled to
security of tenure. Section 3 (2), Article 13, of the Constitution
guarantees the right of all workers to security of tenure. In using the
expression all workers, the Constitution puts no distinction
between a probationary and a permanent or regular employee. This
means that probationary employees cannot be dismissed except for
cause or for failure to qualify as regular employees.
Same; Same; Same; Probationary employees who are unjustly
dismissed during the probationary period are entitled to
reinstatement and payment of full backwages and other benefits and
privileges from the time they were dismissed up to their actual
reinstatement.This Court has held that probationary employees
who are unjustly dismissed during the probationary period are
entitled to reinstatement and payment of full backwages and other
benefits and privileges from the time they were dismissed up to their
actual reinstatement. Respondent is, thus, entitled to reinstatement
without loss of seniority rights and other privileges as well as to full
backwages, inclusive of allowances, and other benefits or their
monetary equivalent computed from the time his compensation was
withheld up to the time of actual reinstatement.
260 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
Same; Same; Same; Doctrine of Strained Relations; Under the
doctrine of strained relations, the payment of separation pay is
considered an acceptable alternative to reinstatement when the
latter option is no longer desirable or viable.Respondents
reinstatement, however, is no longer feasible as antagonism has
caused a severe strain in their working relationship. Under the
doctrine of strained relations, the payment of separation pay is
considered an acceptable alternative to reinstatement when the latter
option is no longer desirable or viable. Payment liberates the
employee from what could be a highly oppressive work environment,
and at the same time releases the employer from the obligation of
keeping in its employ a worker it no longer trusts. Therefore, a more
equitable disposition would be an award of separation pay
equivalent to at least one month pay, in addition to his full
backwages, allowances and other benefits.
Same; Corporate Liability; Corporate directors and officers
are only solidarily liable with the corporation for termination of
employment of corporate employees if effected with malice or in
bad faith.With respect to the personal liability of Hartmannshenn
and Schumacher, this Court has held that corporate directors and
officers are only solidarily liable with the corporation for
termination of employment of corporate employees if effected with
malice or in bad faith. Bad faith does not connote bad judgment or
negligence; it imports dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of unknown duty through
some motive or interest or ill will; it partakes of the nature of fraud.
To sustain such a finding, there should be evidence on record that an
officer or director acted maliciously or in bad faith in terminating the
employee.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Marie Christine S. Sagrado-Cabato for petitioners.
Eliseo Magno C. Salva for respondent.
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SHS Perforated Materials, Inc. vs. Diaz
MENDOZA, J.:
Petitioners, by way of this petition for review on
certiorari under Rule 45, seek to annul and set aside the
December 23, 2008 Decision1 of the Court of Appeals (CA)
in CA-G.R. SP No. 100015, which reversed and set aside the
December 29, 2006 Resolution2 of the National Labor
Relations Commission (NLRC). The NLRC Resolution, in
turn, reversed and set aside the June 15, 2006 Decision3 of
the Labor Arbiter (LA).4
The Facts
Petitioner SHS Perforated Materials, Inc. (SHS) is a start-
up corporation organized and existing under the laws of the
Republic of the Philippines and registered with the Philippine
Economic Zone Authority. Petitioner Winfried
Hartmannshenn (Hartmannshenn), a German national, is its
president, in which capacity he determines the administration
and direction of the day-to-day business affairs of SHS.
Petitioner Hinrich Johann Schumacher (Schumacher), also a
German national, is the treasurer and one of the board
directors. As such, he is authorized to pay all bills, payrolls,
and other just debts of SHS of whatever nature upon
maturity. Schumacher is also the Executive Vice-President of
the European Chamber of Commerce of the Philippines
(ECCP) which is a separate entity from SHS. Both entities
have an arrangement where ECCP handles the payroll
requirements of SHS to simplify business operations and
minimize operational expenses. Thus, the wages of SHS
employees are paid out by ECCP,
_______________
1 Rollo, pp. 9-24. Penned by Associate Justice Arturo G. Tayag and
concurred in by Associate Justice Martin S. Villarama, Jr. (now a
member of this Court) and Associate Justice Noel G. Tijam.
2 Id., at pp. 428-440.
3 Id., at pp. 880-885.
4 Id., Penned by Labor Arbiter Enrico Angelo C. Portillo in NLRC Case
No. RAB IV-12-21758-05-L.
262 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
through its Accounting Services Department headed by Juliet
Taguiang (Taguiang).
Manuel F. Diaz (respondent) was hired by petitioner SHS
as Manager for Business Development on probationary status
from July 18, 2005 to January 18, 2006, with a monthly
salary of P100,000.00. Respondents duties, responsibilities,
and work hours were described in the Contract of
Probationary Employment,5 as reproduced below:
NAME : Jose Manuel F. Diaz
TITLE/STATUS : Manager for Business Development
LOCATION : Lot C3-2A, Phase I, Camelray
Industrial Park II, Calamba, Laguna
REPORTS TO : Direct to Mr. Winfried Hartm-
annshenn
Normal Working Hours : 8:00 a.m. to 5:00 p.m. subject to
requirements of the job
OVERTIME : ________________________
JOB DESCRIPTION AND RESPONSIBILITIES:
DAILY/GENERAL DUTIES:
(a) Represent the company in any event organized by PEZA;
(b) Perform sales/marketing functions;
(c) Monitor/follow-up customers inquiry on EMPLOYERs
services;
(d) Monitor on-going job orders/projects;
(e) Submit requirements as needed in application/renewal of
necessary permits;
(f) Liaise closely with the other commercial and technical staff of
the company;
(g) Accomplish PEZA documents/requirements for every sales
made; with legal assistance where necessary at EMPLOYERs
expense; and
(h) Perform other related duties and responsibilities.
_______________
5 Id., at p. 122.
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SHS Perforated Materials, Inc. vs. Diaz
OTHER RESPONSIBILITIES:
(a) abide by and perform to the best of his abilities all functions,
duties and responsibilities to be assigned by the EMPLOYER in
due course;
(b) comply with the orders and instructions given from time to time
by the EMPLOYER, INC. through its authorized representatives;
(c) will not disclose any confidential information in respect of the
affairs of the EMPLOYER to any unauthorized person;
(d) perform any other administrative or non-administrative duties,
as assigned by any of the EMPLOYERs representative from time
to time either through direct written order or by verbal assignment.
The EMPLOYER may take into account EMPLOYEEs training
and expertise when assigning additional tasks.
AGREED:
(sgd. Manuel Diaz).
In addition to the above-mentioned responsibilities,
respondent was also instructed by Hartmannshenn to report
to the SHS office and plant at least two (2) days every work
week to observe technical processes involved in the
manufacturing of perforated materials, and to learn about the
products of the company, which respondent was hired to
market and sell.
During respondents employment, Hartmannshenn was
often abroad and, because of business exigencies, his
instructions to respondent were either sent by electronic mail
or relayed through telephone or mobile phone. When he
would be in the Philippines, he and the respondent held
meetings. As to respondents work, there was no close
supervision by him.
During meetings with the respondent, Hartmannshenn
expressed his dissatisfaction over respondents poor perfor-
mance. Respondent allegedly failed to make any concrete
business proposal or implement any specific measure to im-
264 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
prove the productivity of the SHS office and plant or deliver
sales except for a meagre P2,500.00 for a sample product. In
numerous electronic mail messages, respondent
acknowledged his poor performance and offered to resign
from the company.
Respondent, however, denied sending such messages but
admitted that he had reported to the SHS office and plant
only eight (8) times from July 18, 2005 to November 30,
2005.
On November 16, 2005, in preparation for his trip to the
Philippines, Hartmannshenn tried to call respondent on his
mobile phone, but the latter failed to answer. On November
18, 2005, Hartmannshenn arrived in the Philippines from
Germany, and on November 22 and 24, 2005, notified
respondent of his arrival through electronic mail messages
and advised him to get in touch with him. Respondent
claimed that he never received the messages.
On November 29, 2005, Hartmannshenn instructed
Taguiang not to release respondents salary. Later that
afternoon, respondent called and inquired about his salary.
Taguiang informed him that it was being withheld and that he
had to immediately communicate with Hartmannshenn.
Again, respondent denied having received such directive.
The next day, on November 30, 2005, respondent served
on SHS a demand letter and a resignation letter. The
resignation letter reads:
This is to tender my irrevocable resignation from SHS
Perforated Materials, Inc, Philippines, effective immediately upon
receipt of my due and demandable salary for the period covering
November 16 to 30, 2005, which has yet been unpaid and is still
currently being withheld albeit illegally. This covers and amounts
to the sum of Php50,000.00 pesos net of all taxes. As my
employment contract clearly shows I receive a monthly salary of
Php100,000.00 net of all taxes.
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SHS Perforated Materials, Inc. vs. Diaz
It is precisely because of illegal and unfair labor practices such
as these that I offer my resignation with neither regret nor remorse.6
In the evening of the same day, November 30, 2005,
respondent met with Hartmannshenn in Alabang. The latter
told him that he was extremely disappointed for the
following reasons: his poor work performance; his
unauthorized leave and malingering from November 16 to
November 30, 2005; and failure to immediately meet
Hartmannshenn upon his arrival from Germany.
Petitioners averred that respondent was unable to give a
proper explanation for his behavior. Hartmannshenn then
accepted respondents resignation and informed him that his
salary would be released upon explanation of his failure to
report to work, and proof that he did, in fact, work for the
period in question. He demanded that respondent surrender
all company property and information in his possession.
Respondent agreed to these exit conditions through
electronic mail. Instead of complying with the said
conditions, however, respondent sent another electronic mail
message to Hartmannshenn and Schumacher on December 1,
2005, appealing for the release of his salary.
Respondent, on the other hand, claimed that the meeting
with Hartmannshenn took place in the evening of December
1, 2005, at which meeting the latter insulted him and rudely
demanded that he accept P25,000.00 instead of his accrued
wage and stop working for SHS, which demands he refused.
Later that same night, he sent Hartmannshenn and
Schumacher an electronic mail message appealing for the
release of his salary. Another demand letter for respondents
accrued salary for November 16 to November 30, 2005, 13th
month pay, moral and exemplary damages, and attorneys
fees was sent on December 2, 2005.
_______________
6 Id., at p. 135.
266 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
To settle the issue amicably, petitioners counsel advised
respondents counsel by telephone that a check had been
prepared in the amount of P50,000.00, and was ready for
pick-up on December 5, 2005. On the same date, a copy of
the formal reply letter relating to the prepared payment was
sent to the respondents counsel by facsimile transmission.
Despite being informed of this, respondent never picked up
the check.
Respondent countered that his counsel received
petitioners formal reply letter only on December 20, 2005,
stating that his salary would be released subsequent to the
turn-over of all materials owned by the company in his
possession. Respondent claimed that the only thing in his
possession was a sample panels folder which he had already
returned and which was duly received by Taguiang on
November 30, 2005.
On December 9, 2005, respondent filed a Complaint7
against the petitioners for illegal dismissal; non-payment of
salaries/wages and 13th month pay with prayer for
reinstatement and full backwages; exemplary damages, and
attorneys fees, costs of suit, and legal interest.
The Ruling of the Labor Arbiter
On June 15, 2006, the LA rendered his decision, the
dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby
rendered declaring complainant as having been illegally dismissed
and further ordering his immediate reinstatement without loss of
seniority rights and benefits. It is also ordered that complainant be
deemed as a regular employee. Accordingly, respondents are hereby
ordered to jointly and severally pay complainant the following
1. P704,166.67 (P100,000.00 x 6.5 + (P100,000.00 x 6.5/12) as
backwages;
2. P50,000.00 as unpaid wages;
3._______________
P37,083.33 as unpaid 13th month pay
7 Id., at p. 177.
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SHS Perforated Materials, Inc. vs. Diaz
4. P200,000.00 as moral and exemplary damages;
5. P99,125.00 as attorneys fees.
SO ORDERED.8
The LA found that respondent was constructively
dismissed because the withholding of his salary was contrary
to Article 116 of the Labor Code as it was not one of the
exceptions for allowable wage deduction by the employer
under Article 113 of the Labor Code. He had no other
alternative but to resign because he could not be expected to
continue working for an employer who withheld wages
without valid cause. The LA also held that respondents
probationary employment was deemed regularized because
petitioners failed to conduct a prior evaluation of his
performance and to give notice two days prior to his
termination as required by the Probationary Contract of
Employment and Article 281 of the Labor Code. Petitioners
contention that they lost trust and confidence in respondent as
a managerial employee was not given credence for lack of
notice to explain the supposed loss of trust and confidence
and absence of an evaluation of respondents performance.
The LA believed that the respondent complied with the
obligations in his contract as evidenced by his electronic mail
messages to petitioners. He ruled that petitioners are jointly
and severally liable to respondent for backwages including
13th month pay as there was no showing in the salary
vouchers presented that such was integrated in the salary; for
moral and exemplary damages for having in bad faith
harassed respondent into resigning; and for attorneys fees.
The Ruling of the NLRC
On appeal, the NLRC reversed the decision of the LA in
its December 29, 2006 Resolution, the dispositive portion of
which reads:
_______________
8 Id., at pp. 884-885.
268 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
WHEREFORE, premises considered, the appeal is hereby
GRANTED.
The Decision dated June 15, 2006 is hereby REVERSED and
SET ASIDE and a new one is hereby entered:
(1) dismissing the complaint for illegal dismissal for want of merit;
(2) dismissing the claims for 13th month pay, moral and exemplary
damages and attorneys fees for lack of factual and legal basis; and
(3) ordering respondents to pay the complainants unpaid salary for
the period covering November 16-30, 2005 in the amount of
FIFTY THOUSAND PESOS (Php 50,000.00).
SO ORDERED.9
The NLRC explained that the withholding of
respondents salary was a valid exercise of management
prerogative. The act was deemed justified as it was
reasonable to demand an explanation for failure to report to
work and to account for his work accomplishments. The
NLRC held that the respondent voluntarily resigned as
evidenced by the language used in his resignation letter and
demand letters. Given his professional and educational
background, the letters showed respondents resolve to sever
the employer-employee relationship, and his understanding of
the import of his words and their consequences.
Consequently, respondent could not have been regularized
having voluntarily resigned prior to the completion of the
probationary period. The NLRC further noted that
respondents 13th month pay was already integrated in his
salary in accordance with his Probationary Contract of
Employment and, therefore, no additional amount should be
due him.
On January 25, 2007, respondent filed a motion for
reconsideration but the NLRC subsequently denied it for lack
of merit in its May 23, 2007 Resolution.
_______________
9 Id., at p. 439.
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SHS Perforated Materials, Inc. vs. Diaz
The Ruling of the Court of Appeals
The CA reversed the NLRC resolutions in its December
23, 2008 Decision, the dispositive portion of said decision
reads:
WHEREFORE, premises considered, the herein petition is
GRANTED and the 29 December 2006 Resolution of the NLRC in
NLRC CN RAB-IV-12-21758-05-L, and the 23 May 2007
Resolution denying petitioners Motion for Reconsideration, are
REVERSED and SET ASIDE. Accordingly, a new judgment is
hereby entered in that petitioner is hereby awarded separation pay
equivalent to at least one month pay, and his full backwages, other
privileges and benefits, or their monetary equivalent during the
period of his dismissal up to his supposed actual reinstatement by the
Labor Arbiter on 15 June 2006.
SO ORDERED.10
Contrary to the NLRC ruling, the CA held that
withholding respondents salary was not a valid exercise of
management prerogative as there is no such thing as a
management prerogative to withhold wages temporarily.
Petitioners averments of respondents failure to report to
work were found to be unsubstantiated allegations not
corroborated by any other evidence, insufficient to justify
said withholding and lacking in probative value. The
malicious withholding of respondents salary made it
impossible or unacceptable for respondent to continue
working, thus, compelling him to resign. The respondents
immediate filing of a complaint for illegal dismissal could
only mean that his resignation was not voluntary. As a
probationary employee entitled to security of tenure,
respondent was illegally dismissed. The CA ruled out actual
reinstatement, however, reasoning out that antagonism had
caused a severe strain in their relationship. It was of the view
that separation pay equivalent to at least one month pay
would be a more equitable disposition.
_______________
10 Id., at pp. 23-24.
270 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
The Issues
Aggrieved, the petitioners come to this Court praying for
the reversal and setting aside of the subject CA decision
presenting the following:
ISSUES
I
THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN NOT AFFIRMING THE DECISION
OF THE NLRC, WHICH WAS BASED ON SUBSTANTIAL
EVIDENCE.
II
THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN NOT AFFIRMING THE NLRCS
HOLDING THAT PETITIONERS WITHHOLDING OF
RESPONDENTS SALARY FOR THE PAYROLL PERIOD
NOVEMBER 16-30, 2005 IN VIEW OF RESPONDENTS
FAILURE TO RENDER ACTUAL WORK FOR SAID PAYROLL
PERIOD WAS A VALID EXERCISE OF MANAGEMENT
PREROGATIVE.
III
THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN AFFIRMING THE LABOR
ARBITERS FINDING THAT RESPONDENT HAD BEEN
CONSTRUCTIVELY DISMISSED.
IV
THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN AWARDING RESPONDENT
SEPARATION PAY EQUIVALENT TO AT LEAST ONE
MONTH PAY IN LIEU OF REINSTATEMENT, FULL
BACKWAGES, AND OTHER PRIVILEGES AND BENEFITS,
OR THEIR MONETARY EQUIVALENT IN VIEW OF THE
FACT THAT RESPONDENT VOLUNTARILY RESIGNED
FROM PETITIONER SHS AND WAS NOT ILLEGALLY
DISMISSED.
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SHS Perforated Materials, Inc. vs. Diaz
V
THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN NOT HOLDING THAT INDIVIDUAL
PETITIONERS HARTMANNSHENN AND SCHUMACHER
MAY NOT BE HELD SOLIDARILY AND PERSONALLY
LIABLE WITH PETITIONER SHS FOR THE PAYMENT OF
THE MONETARY AWARD TO RESPONDENT.
The resolution of these issues is dependent on whether or
not respondent was constructively dismissed by petitioners,
which determination is, in turn, hinged on finding out (i)
whether or not the temporary withholding of respondents
salary/wages by petitioners was a valid exercise of
management prerogative; and (ii) whether or not respondent
voluntarily resigned.
The Courts Ruling
As a rule, the factual findings of the courts below are
conclusive in a petition for review on certiorari where only
errors of law should be reviewed. The case, however, is an
exception because the factual findings of the CA and the LA
are contradictory to that of the NLRC. Thus, a review of the
records is necessary to resolve the factual issues involved
and render substantial justice to the parties.11
Petitioners contend that withholding respondents salary
from November 16 to November 30, 2005, was justified
because respondent was absent and did not show up for work
during that period. He also failed to account for his
whereabouts and work accomplishments during said period.
When there is an issue as to whether an employee has, in
fact, worked and is entitled to his salary, it is within
management prerogative to temporarily withhold an
employees salary/wages pending determination of whether
or not such employee did indeed work.
_______________
11 Norkis Trading Co., Inc. v. Gnilo, G.R. No. 159730, February 11,
2008, 544 SCRA 279, 289.
272 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
We disagree with petitioners.
Management prerogative refers to the right of an
employer to regulate all aspects of employment, such as the
freedom to prescribe work assignments, working methods,
processes to be followed, regulation regarding transfer of
employees, supervision of their work, lay-off and discipline,
and dismissal and recall of work.12 Although management
prerogative refers to the right to regulate all aspects of
employment, it cannot be understood to include the right to
temporarily withhold salary/wages without the consent of the
employee. To sanction such an interpretation would be
contrary to Article 116 of the Labor Code, which provides:
ART. 116. Withholding of wages and kickbacks prohibited.It
shall be unlawful for any person, directly or indirectly, to withhold
any amount from the wages of a worker or induce him to give up any
part of his wages by force, stealth, intimidation, threat or by any
other means whatsoever without the workers consent.
Any withholding of an employees wages by an employer
may only be allowed in the form of wage deductions under
the circumstances provided in Article 113 of the Labor Code,
as set forth below:
ART. 113. Wage Deduction.No employer, in his own behalf
or in behalf of any person, shall make any deduction from the wages
of his employees, except:
(a) In cases where the worker is insured with his consent by the
employer, and the deduction is to recompense the employer for the
amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his
union to check-off has been recognized by the employer or
authorized in writing by the individual worker concerned; and
_______________
12 Baybay Water District v. Commission on Audit, 425 Phil. 326, 343-
344; 374 SCRA 482, 485 (2002).
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SHS Perforated Materials, Inc. vs. Diaz
(c) In cases where the employer is authorized by law or regulations
issued by the Secretary of Labor.
As correctly pointed out by the LA, absent a showing
that the withholding of complainants wages falls under the
exceptions provided in Article 113, the withholding thereof
is thus unlawful.13
Petitioners argue that Article 116 of the Labor Code only
applies if it is established that an employee is entitled to his
salary/wages and, hence, does not apply in cases where there
is an issue or uncertainty as to whether an employee has
worked and is entitled to his salary/wages, in consonance
with the principle of a fair days wage for a fair days
work. Petitioners contend that in this case there was
precisely an issue as to whether respondent was entitled to
his salary because he failed to report to work and to account
for his whereabouts and work accomplishments during the
period in question.
To substantiate their claim, petitioners presented hard
copies of the electronic mail messages14 sent to respondent
on November 22 and 24, 2005, directing the latter to contact
Hartmannshenn; the Affidavit15 of Taguiang stating that she
advised respondent on or about November 29, 2005 to
immediately communicate with Mr. Hartmannshenn at the
SHS office; Hartmannshenns Counter-Affidavit16 stating
that he exerted earnest efforts to contact respondent through
mobile phone; Schumachers Counter-Affidavit17 stating that
respondent had not filed any request for official leave; and
respondents admission in his Position Paper18 that he found
it ab-
_______________
13 Rollo, p. 883.
14 Id., at pp. 133-134.
15 Id., at p. 174.
16 Id., at p. 162.
17 Id., at p. 169.
18 Id., at p. 1082.
274 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
surd to report to the SHS plant when only security guards
and machinists were present.
Respondent, on the other hand, presented reports19
prepared by him and submitted to Hartmannshenn on
November 18 and 25, 2005; a receipt20 issued to him by
Taguiang for a clients payment during the subject period;
and eight notarized letters21 of prospective clients vouching
for meetings they had with the respondent during the subject
period.
The Court finds petitioners evidence insufficient to prove
that respondent did not work from November 16 to
November 30, 2005. As can be gleaned from respondents
Contract of Probationary Employment and the exchanges of
electronic mail messages22 between Hartmannshenn and
respondent, the latters duties as manager for business
development entailed cultivating business ties, connections,
and clients in order to make sales. Such duties called for
meetings with prospective clients outside the office rather
than reporting for work on a regular schedule. In other
words, the nature of respondents job did not allow close
supervision and monitoring by petitioners. Neither was there
any prescribed daily monitoring procedure established by
petitioners to ensure that respondent was doing his job.
Therefore, granting that respondent failed to answer
Hartmannshenns mobile calls and to reply to two electronic
mail messages and given the fact that he admittedly failed to
report to work at the SHS plant twice each week during the
subject period, such cannot be taken to signify that he did not
work from November 16 to November 30, 2005.
Furthermore, the electronic mail reports sent to
Hartmannshenn and the receipt presented by respondent as
evidence of his having worked during the subject period
were not
_______________
19 Id., at pp. 1108-1109.
20 Id., at p. 1110.
21 Id., at pp. 461-469.
22 Id., at pp. 123-132.
VOL. 633, OCTOBER 13, 2010 275
SHS Perforated Materials, Inc. vs. Diaz
controverted by petitioners. The eight notarized letters of
prospective clients vouching for meetings they had with
respondent during the subject period may also be given
credence. Although respondent only presented such letters in
support of his Motion for Reconsideration filed with the
NLRC, they may be considered by this Court in light of
Section 10, Rule VII, of the 2005 New Rules of Procedure
of the NLRC, which provides in part that the rules of
procedure and evidence prevailing in courts of law and equity
shall not be controlling and the Commission shall use every
and all reasonable means to ascertain the facts in each case
speedily and objectively, without regard to technicalities of
law or procedure, all in the interest of due process. While
administrative tribunals exercising quasi-judicial functions are
free from the rigidity of certain procedural requirements,
they are bound by law and practice to observe the
fundamental and essential requirements of due process in
justiciable cases presented before them.23 In this case, due
process was afforded petitioners as respondent filed with the
NLRC a Motion to Set Case for Reception of Additional
Evidence as regards the said letters, which petitioners had
the opportunity to, and did, oppose.
Although it cannot be determined with certainty whether
respondent worked for the entire period from November 16
to November 30, 2005, the consistent rule is that if doubt
exists between the evidence presented by the employer and
that by the employee, the scales of justice must be tilted in
favor of the latter24 in line with the policy mandated by
Articles 2 and 3 of the Labor Code to afford protection to
labor and construe doubts in favor of labor. For petitioners
failure to satisfy their burden of proof, respondent is
presumed to have worked during the period in question and
is, accordingly, entitled to his
_______________
23 Cesa v. Office of the Ombudsman, G.R. No. 166658, April 30,
2008, 553 SCRA 357, 365.
24 Phil. Employ Services and Resources, Inc. v. Paramio, 471 Phil.
753, 777; 427 SCRA 732, 752 (2004).
276 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
salary. Therefore, the withholding of respondents salary by
petitioners is contrary to Article 116 of the Labor Code and,
thus, unlawful.
Petitioners contend that respondent could not have been
constructively dismissed because he voluntarily resigned as
evidenced by his resignation letter. They assert that
respondent was not forced to draft the letter and his intention
to resign is clear from the contents and terms used, and that
given respondents professional and educational background,
he was fully aware of the import and consequences of the
said letter. They maintain that respondent resigned to save
face and avoid disciplinary measures due to his allegedly
dismal work performance and failure to report to work.
The Court, however, agrees with the LA and the CA that
respondent was forced to resign and was, thus, constructively
dismissed. In Duldulao v. Court of Appeals, it was written:
There is constructive dismissal if an act of clear discrimination,
insensibility, or disdain by an employer becomes so unbearable on
the part of the employee that it would foreclose any choice by him
except to forego his continued employment. It exists where there is
cessation of work because continued employment is rendered
impossible, unreasonable or unlikely, as an offer involving a
demotion in rank and a diminution in pay.25
What made it impossible, unreasonable or unlikely for
respondent to continue working for SHS was the unlawful
withholding of his salary. For said reason, he was forced to
resign. It is of no moment that he served his resignation letter
on November 30, 2005, the last day of the payroll period and
a non-working holiday, since his salary was already due him
on November 29, 2005, being the last working day of said
period. In fact, he was then informed that the wages of all
the other SHS employees were already released, and only his
was being withheld. What is significant is that the respondent
prepared
_______________
25 Duldulao v. Court of Appeals, G.R. No. 164893, March 1, 2007,
517 SCRA 191, 199.
VOL. 633, OCTOBER 13, 2010 277
SHS Perforated Materials, Inc. vs. Diaz
and served his resignation letter right after he was informed
that his salary was being withheld. It would be absurd to
require respondent to tolerate the unlawful withholding of his
salary for a longer period before his employment can be
considered as so impossible, unreasonable or unlikely as to
constitute constructive dismissal. Even granting that the
withholding of respondents salary on November 30, 2005,
would not constitute an unlawful act, the continued refusal to
release his salary after the payroll period was clearly
unlawful. The petitioners claim that they prepared the check
ready for pick-up cannot undo the unlawful withholding.
It is worthy to note that in his resignation letter,
respondent cited petitioners illegal and unfair labor
practice26 as his cause for resignation. As correctly noted
by the CA, respondent lost no time in submitting his
resignation letter and eventually filing a complaint for illegal
dismissal just a few days after his salary was withheld. These
circumstances are inconsistent with voluntary resignation and
bolster the finding of constructive dismissal.
Petitioners cite the case of Solas v. Power & Telephone
Supply Phils., Inc.27 to support their contention that the mere
withholding of an employees salary does not by itself
constitute constructive dismissal. Petitioners are mistaken in
anchoring their argument on said case, where the
withholding of the salary was deemed lawful. In the above-
cited case, the employees salary was withheld for a valid
reasonit was applied as partial payment of a debt due to
the employer, for withholding taxes on his income and for
his absence without leave. The partial payment of a debt due
to the employer and the withholding of taxes on income were
valid deductions under Article 113, paragraph (c), of the
Labor Code. The deduction from an employees salary for a
due and demandable debt to an employer was likewise
sanctioned under Article
_______________
26 Rollo, p. 135.
27 G.R. No. 162332, August 28, 2008, 563 SCRA 522, 529.
278 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
1706 of the Civil Code. As to the withholding for income tax
purposes, it was prescribed by the National Internal Revenue
Code. Moreover, the employee therein was indeed absent
without leave.
In this case, the withholding of respondents salary does
not fall under any of the circumstances provided under
Article 113. Neither was it established with certainty that
respondent did not work from November 16 to November
30, 2005. Hence, the Court agrees with the LA and the CA
that the unlawful withholding of respondents salary amounts
to constructive dismissal.
Respondent was constructively dismissed and, therefore,
illegally dismissed. Although respondent was a probationary
employee, he was still entitled to security of tenure. Section 3
(2), Article 13, of the Constitution guarantees the right of all
workers to security of tenure. In using the expression all
workers, the Constitution puts no distinction between a
probationary and a permanent or regular employee. This
means that probationary employees cannot be dismissed
except for cause or for failure to qualify as regular
employees.28
This Court has held that probationary employees who are
unjustly dismissed during the probationary period are entitled
to reinstatement and payment of full backwages and other
benefits and privileges from the time they were dismissed up
to their actual reinstatement.29 Respondent is, thus, entitled to
reinstatement without loss of seniority rights and other
privileges as well as to full backwages, inclusive of
allowances, and other benefits or their monetary equivalent
computed from the time his compensation was withheld up
to the time of actual reinstatement. Respondent, however, is
not entitled to the additional amount for 13th month pay, as it
is clearly provided in respondents Probationary Contract of
_______________
28 Civil Service Commission v. Magnaye, G.R. No. 183337, April 23,
2010; 619 SCRA 347, 355.
29 Lopez v. Javier, 322 Phil. 70, 81; 252 SCRA 68, 77 (1996).
VOL. 633, OCTOBER 13, 2010 279
SHS Perforated Materials, Inc. vs. Diaz
Employment that such is deemed included in his salary.
Thus:
EMPLOYEE will be paid a net salary of One Hundred
Thousand (Php100,000.00) Pesos per month payable every 15th day
and end of the month.
The compensation package defined in this paragraph shall
represent all that is due and demandable under this Contract and
includes all benefits required by law such as the 13th month pay.
No other benefits, bonus or allowance shall be due the employee.30
(emphasis supplied)
Respondents reinstatement, however, is no longer
feasible as antagonism has caused a severe strain in their
working relationship. Under the doctrine of strained relations,
the payment of separation pay is considered an acceptable
alternative to reinstatement when the latter option is no
longer desirable or viable. Payment liberates the employee
from what could be a highly oppressive work environment,
and at the same time releases the employer from the
obligation of keeping in its employ a worker it no longer
trusts. Therefore, a more equitable disposition would be an
award of separation pay equivalent to at least one month pay,
in addition to his full backwages, allowances and other
benefits.31
With respect to the personal liability of Hartmannshenn
and Schumacher, this Court has held that corporate directors
and officers are only solidarily liable with the corporation for
termination of employment of corporate employees if
effected with malice or in bad faith.32 Bad faith does not
connote bad judgment or negligence; it imports dishonest
purpose or some moral obliquity and conscious doing of
wrong; it means breach of unknown duty through some
motive or interest or ill will; it
_______________
30 Rollo, p. 121.
31 Golden Ace Builders v. Talde, G.R. No. 187200, May 5, 2010, 620
SCRA 283.
32 Wensha Spa Center, Inc. v. Yung, G.R. No. 185122, August 16,
2010, 628 SCRA 311.
280 SUPREME COURT REPORTS ANNOTATED
SHS Perforated Materials, Inc. vs. Diaz
partakes of the nature of fraud.33 To sustain such a finding,
there should be evidence on record that an officer or director
acted maliciously or in bad faith in terminating the
employee.34
Petitioners withheld respondents salary in the sincere
belief that respondent did not work for the period in question
and was, therefore, not entitled to it. There was no dishonest
purpose or ill will involved as they believed there was a
justifiable reason to withhold his salary. Thus, although they
unlawfully withheld respondents salary, it cannot be
concluded that such was made in bad faith. Accordingly,
corporate officers, Hartmannshenn and Schumacher, cannot
be held personally liable for the corporate obligations of
SHS.
WHEREFORE, the assailed December 23, 2008
Decision of the Court of Appeals in CA-G.R. SP No. 100015
is hereby AFFIRMED with MODIFICATION. The
additional amount for 13th month pay is deleted. Petitioners
Winfried Hartmannshenn and Hinrich Johann Schumacher
are not solidarily liable with petitioner SHS Perforated
Materials, Inc.
SO ORDERED.
Velasco, Jr.,** Nachura*** (Actg. Chairperson),
Leonardo-De Castro**** and Brion,***** JJ., concur.
_______________
33 Malayang Samahan ng Mga Mangagawa v. Ramos, 409 Phil. 61,
83; 357 SCRA 77, 94 (2001).
34 M + W Zander Philippines, Inc. and Rolf Wiltschek v. Trinidad
Enriquez, G.R. No. 169173, June 5, 2009, 588 SCRA 590, 610-611.
** Designated as an additional member in lieu of Senior Associate
Justice Antonio T. Carpio per Special Order No. 897 dated September
28, 2010.
*** Per Special Order No. 898 dated September 28, 2010.
**** Designated as an additional member in lieu of Justice Roberto A.
Abad, per Special Order No. 905 dated October 5, 2010.
***** Designated as an additional member in lieu of Associate Justice
Diosdado M. Peralta, per Special Order No. 904 dated October 5, 2010.
Judgment affirmed with modification.
Note.The option to exercise actual reinstatement or
payroll reinstatement belongs to the employer. (Yrasuegui vs.
Philippine Airlines Inc., 569 SCRA 467 [2008])
o0o
G.R. No. 188154. October 13, 2010.*
LOURDES A. CERCADO, petitioner, vs. UNIPROM, INC.,
respondent.
Labor Law; Retirement; The Labor Code pegs the age for
compulsory retirement at 65 years, while the minimum age for
optional retirement is set at 60 years; An employer is free to impose
a retirement age earlier than the foregoing mandates.Retirement
is the result of a bilateral act of the parties, a voluntary agreement
between the employer and the employee whereby the latter, after
reaching a certain age, agrees to sever his or her employment with
the former. Article 287 of the Labor Code, as amended by R.A. No.
7641, pegs the age for compulsory retirement at 65 years, while the
minimum age for optional retirement is set at 60 years. An employer
is, however, free to impose a retirement age earlier than the fore-
going mandates. This has been upheld in numerous cases as a valid
exercise of management prerogative.
Same; Same; A retirement plan giving the employer the option
to retire its employees below the ages provided by law must be
assented to and accepted by the latter.It is axiomatic that a
retirement plan giving the employer the option to retire its employees
below the ages provided by law must be assented to and accepted by
the latter, otherwise, its adhesive imposition will amount to a
deprivation of property without due process of law.
_______________
* SECOND DIVISION.